ESRX - Express Scripts

[DooDiligence]

and this

 

http://www.drugchannels.net/2017/05/five-fun-facts-about-new-express.html

[DooDiligence]

Jeez, reading thru some of my older garbage re: Express Scripts makes me cringe.

 

(might should've paid attention to my earlier self?)

 

This was a pretty good article on pharma supply & the Hill (the hatchets come out & get blocked)

 

https://mobile.nytimes.com/2017/05/29/health/drug-lobbyists-battle-cry-over-prices-blame-the-others.html

 

(how bout a naked link for a call 2 action?)

[DooDiligence]

Brave Warrior sold a bunch last Q

[DooDiligence]

I think the question to ask is, can someone else spend less than $40B & recreate this business? (of course they can, significantly less...)

(but with the same scale?)

 

I get it

[Guest roark33]

This is a good article, if you are basically taking a percentage of the list price, you have every incentive for the list price to go up, not down. 

 

https://www.propublica.org/article/drug-quintupled-in-price-now-drug-industry-players-feuding-over-windfall?utm_campaign=bt_twitter&utm_source=twitter&utm_medium=social

[Spekulatius]

I think the question to ask is, can someone else spend less than $40B & recreate this business? (of course they can, significantly less...)

(but with the same scale?)

 

I get it

 

The recent example of UNH of firing ESRX, entirely, despite being sole supplier/service is a clear sign, that ESRX services are not that proprietary and their platform value is not that high. I think most of their values lies in their size and economies of scale.

 

You think it is things like above (I an can fire my largest/ sole supplier) that are tell tale signs and many that just focus on metrics miss them. I work in another industry, but I can tell you that firing a sole supplier of that scale is typically impossible. The fact that it is possible in UNH case, is a tell tale sign for ESRX.

 

I think ESRX scaling advantage is countered by the insurers consolidating as well. I also think that the industry will wake up and to the fact that from a customers perspective, integrating the pharmacy is more convenient and probably also enables better outcome. From my personal experience, Kaisers totally integrated systems beats all those patchwork systems that have seen so far. I am not sure, I see totally integrated systems dominating, but for me, interesting the pharmacy in the insurer is a no brainer.

[DooDiligence]

I think the question to ask is, can someone else spend less than $40B & recreate this business? (of course they can, significantly less...)

(but with the same scale?)

 

I get it

 

The recent example of UNH of firing ESRX, entirely, despite being sole supplier/service is a clear sign, that ESRX services are not that proprietary and their platform value is not that high. I think most of their values lies in their size and economies of scale.

 

You think it is things like above (I an can fire my largest/ sole supplier) that are tell tale signs and many that just focus on metrics miss them. I work in another industry, but I can tell you that firing a sole supplier of that scale is typically impossible. The fact that it is possible in UNH case, is a tell tale sign for ESRX.

 

I think ESRX scaling advantage is countered by the insurers consolidating as well. I also think that the industry will wake up and to the fact that from a customers perspective, integrating the pharmacy is more convenient and probably also enables better outcome. From my personal experience, Kaisers totally integrated systems beats all those patchwork systems that have seen so far. I am not sure, I see totally integrated systems dominating, but for me, interesting the pharmacy in the insurer is a no brainer.

 

I tend to agree & am fervently hoping that Cigna or even Anthem, busts open the wallet & buys Express Scripts.

 

WBA would be my 2nd (or 3rd) choice as a suitor (they have some pretty intertwined dealings.)

 

Either way, the success of the business, whether as a standalone PBM or as a part of a payer or distribution organization, depends on making the pivot towards transparency & value based delivery.

 

If someone else can create a service which increases overall patient health by improving treatment efficacy & if they can provide end to end logistics for supply & distribution, then they can erode ESRX business & eventually supplant them (timelines vary based upon the analysts agenda & I'm guessing that by 2021 we'd start to see runoff...)

[rb]

Anyone know why this is down so much today? Is it just the California bill or something else as well?

[DooDiligence]

Anyone know why this is down so much today? Is it just the California bill or something else as well?

 

Will POS rebates & such win out over true price controls?

 

http://uglymule.com/images/PBMs-CA-Legislation.jpeg

 

---

 

How will Prime Pharma disrupt the supply chain?

 

http://uglymule.com/images/PBMs-Leerink.jpeg

 

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WTFK, I just Googled & didn't find anything about them having to pay Anthem $15B so that's not it.

 

What's JPM say?  ::)

[DooDiligence]

And this

 

http://www.barrons.com/articles/express-scripts-amazons-the-least-of-your-worries-1507581555?mod=yahoobarrons&ru=yahoo&yptr=yahoo

[MrB]

Kaleo case

 

https://assets.documentcloud.org/documents/3762086/Express-Scripts-vs-Kaleo.pdf

[MrB]

http://www.pbmwatch.com/

http://www.communityoncology.org/home/studies/

[MrB]

Great read https://aishealth.com/sites/all/files/gc6p03_11-16.pdf

[DooDiligence]

Kaleo case

 

https://assets.documentcloud.org/documents/3762086/Express-Scripts-vs-Kaleo.pdf

 

Seems like a small sum of money & I'm curious as to why they didn't hammer / exclude to keep the price from rising so rapidly?

 

Also, tons of blacked out stuff that'd be interesting to see.

 

http://uglymule.com/images/ESRX-Rebates.png

 

Sweet jesus don't let me ever get comfortable with this company again...

[DooDiligence]

Great read https://aishealth.com/sites/all/files/gc6p03_11-16.pdf

 

Aha, fills in the blanks - thanks.

 

Good to know for more context regarding the rest of the chain.

[Cigarbutt]

Thought the following was relevant as some posts previously discussed how "rebates" were passed on (or not) to customers (who are the customers?) and as it is expected that there will be more scrutiny in terms of profit margins that likely need to get compressed along the value chain:

http://www.businessinsider.com/sec-looks-into-express-scripts-rebates-from-pharmaceutical-firms-2017-12

 

As mentioned before here, integrating PBMs into the health insurer may be value accretive. The sector is ripe for consolidation/transformation.

http://www.modernhealthcare.com/article/20171102/NEWS/171109974

 

Speaking of scrutiny and looking into issues, the photograph at the top of the first link shows a concerned MD probably wondering how to remove the old Coke bottle from the rectum. I would say either that the author of the article had limited pharmaceutical knowledge or this is simply a bad omen for PBMs. Strange things happen.

 

[DooDiligence]

Thought the following was relevant as some posts previously discussed how "rebates" were passed on (or not) to customers (who are the customers?) and as it is expected that there will be more scrutiny in terms of profit margins that likely need to get compressed along the value chain:

http://www.businessinsider.com/sec-looks-into-express-scripts-rebates-from-pharmaceutical-firms-2017-12

 

As mentioned before here, integrating PBMs into the health insurer may be value accretive. The sector is ripe for consolidation/transformation.

http://www.modernhealthcare.com/article/20171102/NEWS/171109974

 

Speaking of scrutiny and looking into issues, the photograph at the top of the first link shows a concerned MD probably wondering how to remove the old Coke bottle from the rectum. I would say either that the author of the article had limited pharmaceutical knowledge or this is simply a bad omen for PBMs. Strange things happen.

 

It's my understanding that the customers are whatever payer signs a contract & that the patient is not the customer, as is so often assumed in Twitter flame fests, etc.

 

I believe this will change as integration happens & I sold ESRX at a loss because I believe their time is limited as a standalone (damn Morningstar & their BS moat ratings & damn me for not thinking it through better.)

 

Removing a Coke bottle from a keister indeed...

[K2SO]

Just looking at the CI/ESRX deal and in particular the dull reaction of ESRX shares. Based on current values, I'm calculating a value for ESRX of $91, while it trades just above $80. Given the way the industry is moving, I don't see high odds of this deal being blocked. Additionally, the cash/share purchase price means that CI can fall as low as $130 before the current price for ESRX would prove to be too high. Deal is set to close Dec. 31, and I can see a lot of current ESRX holders selling as it's largely dead money until then (with $48.75 coming in cash). Looks like a buying opp to me, not a bad return for those who can wait it out.

 

[Cigarbutt]

So, Cigna plans to purchase ESRX and that's big news.

Interesting to reflect on industry dynamics as the sector is vertically consolidating.

http://healthpolicy.usc.edu/documents/USC%20Schaeffer_Flow%20of%20Money_2017.pdf

 

What does it mean?

Opinion: Incumbents want to maintain control on their oligopolistic part of the market.

Expected result for the incumbents: essentially status quo.

 

Firms that want to maximize profit is nothing new and that can mean good things for the shareholders.

However, need to look at the moat from all angles.

 

Whether one agrees with it or not and whether one likes it or not, the government is likely to become more "involved", for better or for worse (depending if you are a patient, an investor or else).

The PBM component of the industry has become perhaps a poster child of a potentially good idea gone too far. Some aspects like the "gag clauses" that PBMs impose and the relative opacity of the transactions are likely to become areas of outside scrutiny. The drug market cost profile is now characterized by significantly increasing use of expensive "specialty" drugs. This is occurring at a time when pharma companies (my opinion, somewhat validated) produce less and less game-changing drugs (in terms of new classes of drugs and efficacy within the same class).

 

If you are interested in healthcare investment (DVA, pharmas, etc), like it or not, politics is likely to play an increasing role.

Here's a sample of what is going on in Arkansas (representative of things to come at the national level):

https://www.arktimes.com/arkansas/committee-approves-bill-to-regulate-pharmacy-benefit-managers-over-objections-of-conservative-group/Content?oid=15633990

BTW, the bill has passed.

 

Expect continued pressure on margins and major transformation.

I think that reform should come from within but healthcare is no longer a private business.